EP 228 – Past Note Investing Tactics Still Useful Today? A Back To The Future Episode

Back in the day, note investing had no platform to launch from, that’s why for most real estate investors it was considered the wild west of the business. This idea has clearly been lifted with the note investor’s population growing by the day. But just like the movie Back To The Future, we need to learn how note investing tactics were done in the past so that we can learn and improve. A few years back, it was a normal thing when note investors would call 50 to 100 banks or asset managers, because this business is a number’s game and reaching out is the best way to get ahead of the game. Learn the importance of phone calls and emails to build relationships that will last for the next five years.

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Past Note Investing Tactics Still Useful Today? A Back To The Future Episode

This episode is called Back to The Future. We’ve got some great stuff that’s rocking that we haven’t done in a while that we expect some big things from. We had a phenomenal turnout for our Note Night in America episode called The Marketing Octagon or Step into the Ring . Business over the last few years has been up and down and changed in a variety of ways. When I first started ten years ago, this was a secondary market with the non-performing note side that didn’t exist. It was a really new territory. As a lot of people have said, it was the Wild West as far as real estate investing because we did not have a lot of the platforms. We did not have the auction websites or the Watermark Exchanges or a lot of these established websites to go to, to look for assets. It was a lot of different. You had a lot of banks that were all over the place. They didn’t know how to move some of their stuff. A lot of banks and lending institutions out there still have a lot of distressed debt on their books. As the market was working itself out, you had all this stuff with banks and then you had some of the bigger funds that came in and purchased these large trenches or large pools off, and they were selling them off to individual investors. It was a trickledown effect; $100 million pools down to $50 million pools down to $5 million pools down to the $1 million pools to the one-off notes. A lot of people were going through these hedge funds in real estate. That resulted into the Condors, the Granites, the Kojaians, those type of institutions that had assets available for sale. A lot of investors got fat on returns, fat on deals by buying directly from the resources. We did this too. We bought a lot of notes from banks and asset managers that had stuff and more so on these things, and that works for banks.

Note Investing Tactics: A lot of banks and lending institutions out there still have a lot of distressed debt on their books

Business has changed for a lot of people who never called banks. They came to the market, there were all these resources and websites. They got fat business-wise on feasting on this low-hanging fruit. If pricing was good, pricing would go up a little bit every year. Since the residential market, the true real estate market is way overpriced, lots of demand, not as much inventory, a lot of real estate investors are coming over to the note side, the dark side of real estate investing. What’s caused that to happen here? That low-hanging fruit is the first place they go because that’s the word of mouth. That’s what they see when they do search on Google. They go to conferences, they meet these investors or these note sellers there, so they go to that low-hanging fruit. What does that do for them? That increases the price on that stuff because demand has increased but inventory’s the same, so price goes up. Then you have weekend warriors, you have fix and floppers, retired landlords that are buying these notes and paying too much for them, “You can get this for $0.70 on the dollar? I can go buy it for $0.85 on the dollar. I can take care of this.” They don’t seem to get the fact that they’re over-paying, but it is what it is because the sellers are glad to gobble up those dollars at $0.80, $0.85, $0.90 and sell to some weekend warrior versus established buyers. Investors like me are like, “This doesn’t make any sense. I’m not buying from that. I’ll wait and try to go out and find some other sources.” The only remaining sources are those that go direct to banks and lending institutions.

The Back to the Future side of things is, years ago I would religiously call 50 to 100 banks a day, three times a week, to track down and build a large database. I would still market to asset managers, direct to banks to find stuff on a regular basis. One of the constant nuggets I would tell people all the time to do is, “At least once a month, if not more often, send an email out to banks. Pull asset managers lists because those are still available to find.” You can still go to state licensing websites and pull lists from mortgage bankers and banks doing business in your state. Why not reach out to them? It’s a very small percentage, a very niche within a niche of a niche of note investors who are reaching out to banks. Those that do, it’s a numbers game. The number used to be, “I have to call 50 banks to get a hold of thirteen to fifteen asset managers.” You get four NDAs out of that, Non-Disclosure Agreements from banks, and usually you end up finding a list. It could be one asset, it could be 1,000 assets. It just varies depending on the situation whether it’s residential or commercial and how much that bank had in default or how big the bank was.

Note Investing Tactics: At least once a month, if not more often, send an email out to banks.

We have instilled some of those principles for this year to help us drive deals for the rest of the year. We’ve got twenty people that got their list and should start calling banks of Blitzkrieg-ing the bank. I provide the lists. At the end of four straight weeks of calling banks, I’ll combine the list together and all of us will walk away with a great big list of new asset managers. If they flake off and they don’t make their required phone calls every week and turn them into me in a timely fashion, they’re booted out. I would love it if all twenty people stayed around. The last time we did this, only about a third of those that signed up for it made it to the end. I think it’s an ingenious plot to help everybody out, because it will give us a big list on top of our already big list. It will also help those that are interested in doing this. They will also walk with a nice-sized list as well. I provide scripts and I provide list of banks. I give them a list of different asset managers of banks every week. Why do I think that’s important? From talking with asset managers and talking with people out there who have been buying assets and large portfolios, I think we all could agree, pricing has gone up across the board. I still believe and I still know this to be a fact, we’re still at roughly a 4.5% to 5% default rate on all mortgages created across the country. It doesn’t have to be anything that’s from five years ago or ten years ago, these legacy notes that have been hanging around. For instance, GMAC went under. There are still a lot of defaulted notes.

We may not see 1,000 asset tapes for a while but we all know that history is going to repeat itself. My big thing is not just instantaneous deals. This has helped to build relationships going forward for the next year to two years. If we can add another 4,000 or 5,000 asset managers to our database, we’re bound to find something on that list on a regular basis as long as we market out to people. If anybody out there ever deals with an educator or somebody who says, “You can’t buy direct from banks,” just slap them in the face and tell them Scott told you to do that because we’ve been buying direct from banks for years, plenty of people have been buying direct from banks for years. One of our top episodes is buying bank direct assets where we had Jamie Kubiak and Joe Bayarena and Adam Adams on, they bought a portfolio. You’re going to find banks that have assets. You’re going to find banks that have specific lending platforms or types of lending programs that they want to get rid of but they don’t want to be the bad person with the bad press foreclosing on their local borrowers.

Where do I think we’re going to see the most amount of deals come from? I’ve instructed our Banking Blitzkrieg people, and it’s not open to everybody, do not bother calling the credit unions because they aren’t going to have a large variety of mortgages. They’re calling banks. They’re going to knock out 100 phone calls. They’ve got to follow up with those asset managers. In week two, week three, week four, they’ll have a list of 50 each. I think that we’re going to see some assets from regional banks in residential and the commercial side of things. What price do they have? Who knows? Part of the biggest key to this bank rollout is building relations with the asset managers. I had a list of over 5,500 through opt-outs, people leaving their jobs, banks closing and things like that. We’re down about 3,500. I still reach out to them on a regular basis. Maybe definitely fourth quarter of 2018 we’re going to see a lot of changes happen because we’re going to start seeing more markets start to go south a little bit. Days in market are going to extend quite a bit. We’ve already seen that in some of the higher-end markets like Miami and Aspen. The values cannot keep increasing like they have across the country. We’re going to see some downturn. I don’t know what exactly it is. I don’t think the stock market will keep going up and up either as well.

Note Investing Tactics: Part of the biggest key to this bank rollout is building relations with the asset managers.

We are doing this because I believe this is where the market is going. I believe we can make big things happen now like we did years ago. Is it going to be the easiest thing to do? No. There are going to be some people who make 50 phone calls and get 50 voice messages. There will also be someone who makes five phone calls and get five asset managers on the phone. It’s a different mindset. This is a forward process. For every note we get, we’re closer to a yes. Some of the things that have happened to me in the past, I have made phone calls and the first phone call I made on one day, I get a hold of an asset manager who has got a car shop in Dallas. It wasn’t necessarily something I wanted to buy long-term or invest in but it was still a contact. It still was some boost that can get you rock and rolling. We want to avoid with our phone calls the one-off, the weird deals. I’m not saying there’s not a buyer out there, but I would much rather deal with the bread and butter residential or bread and butter commercial. What I mean by bread and butter commercial are small-balanced commercial loans, usually $1 million or less. We see a lot of that in different areas. There’s a lot of opportunity. You’ve got to be making direct contact with asset managers to help you with your own portfolio these days because that’s what’s going to end up happening.

We have seen a migration of real estate investors coming from other assets, coming to the note game. That’s why notes are one of the hottest topics around, but they’re not doing the things. They’re listening to people that have never had to call banks before. They’re overpaying assets. Whereas if they worked a little bit harder and actually build a business out instead of dealing with choker brokers, they’ll have a stronger business. They’ll have cleaner assets because most of the time the assets that come direct from the banks are much cleaner value. They know exactly what’s going on with the deal, cleaner paperwork. It’s not been sold three or four times and brokered off or things like that. They know what’s going on with the asset and can offer up a much more competitive price because we as investors come in, buy that note, take it over, and we have some flexibility with what we’re doing. The big FHA trades are overpriced. When you look at Goldman Sachs or other companies that are buying those up at a premium because they have some discount they can offer up the borrower to offset their $1 billion-fine, this is why I believe it’s important that you’ve got to have a balanced business of bank asset managers that send you deals on a regular basis where you’ve got a market in. This is why the Note Night in America webinar with The Marketing Octagon was so important because you have to market. You just can’t say, “I’m going to get a list every month.” That’s not the case. Those lists that asset managers are sending out are dwindling down. If you did not notice that, you have got to be prepared that someday those lists may not be available every week or every month, maybe once a quarter. If that’s the case, your business is going to dwindle down and rapidly dry out.

Someone was on FCI Exchange and that a lot was posted at 100% on the UPB. Those exchanges are overpriced. They don’t make sense. There’s a lot of bait and switch going on, especially on FCI Exchange or some of those other note listing services. New buyers will put a price down but when it comes down to it, “I don’t want 40%, I want 80%.” It doesn’t make sense. I haven’t bought anything from FCI Exchange. One of our previous guests, Bob Malecki, has bought a few over the years there. That’s not a sustainable business model if you’re buying four in four years. We all want to do more than one note a year unless it’s just a $1 million deal you’re making bucks off of.

The big thing you want to keep in mind, and this is just some basic ground rules for calling asset managers, don’t call them on Monday or Friday. You’re just wasting your time calling on a Monday or Friday because on Mondays they’re going to be so busy dealing with things and meetings. I’m not saying you won’t get some but it’s just not an effective best time to call. We have found that calling Tuesday, Wednesday and Thursday is the best. Calling between 10:00 and 12:00 and 2:00 and 5:00 their time. If you’re in Florida and you’re calling somebody in Texas or Missouri, you’re going to have to wait until a little bit later the day. If you’re in California and you want to call somebody in Missouri, you want to do it earlier. 8 AM their time would be 10 AM Central. It’s important to keep that in mind. The best thing I can tell you is just use a spreadsheet, pull up a list, start dialing for dollars off that spreadsheet, and get into the habit. Expect to make 20, 30 phone calls. If you only make five or ten phone calls in a day, you’re really not doing yourself any justice. The idea is getting into a momentum. The best way to do that, and this comes from an ex-financial advisor who said to do that all the time, whereas a banker, we’d have to make just call blasts, is using a spreadsheet to track when you called, what time, so you know, “I called 11:00 in the morning. I should probably call at 3:00 in the afternoon.” Track where you call, who you call and who you talk to. Get their information and then really leverage that. If you didn’t get them in the first time, when you call back the second time in the afternoon, you’re leaving another voice message. The idea is to hit them with multiple contacts.

Those that reach out to people on a regular basis have the best in luck. If you just call one time, you might as well not have done it to begin with. The biggest thing I can tell you is be diligent in your phone calls, be diligent in who you call, and expect to knock out 50 to 100 phone calls to see any type of results. There were some days when I went over 50 and other days that I went 25 or 30 for 50. It just varies. Over time I guarantee you, Tuesday, Wednesday and Thursday, 10 to 12, 2 to 5, their time, is going to be one of the most effective times to call. As you get emails or talk to the gatekeepers, follow up with emails at the end of the day to the asset managers that you left messages with or you talked to. It’s a great thing. If you can go over to LinkedIn and try to connect with them there and also drop them a message there as well.

Note Investing Tactics: Those that reach out to people on a regular basis have the best in luck.

I would not do any direct mail. I don’t think it’s worth it for the most part because most of them, they have people who filter their junk mail and they get rid of it. I don’t think it’s worth doing direct mail, but in this day and age you can take those list of emails and see if they’re on Facebook. You can do a custom audience search. You can also see if they’re on any other social media platforms and connect with them there. Some people are asking me, “Why would I connect with them on LinkedIn? I’ve got to go now and filter them off.” I would not filter them off your main LinkedIn connections. If you are exporting your contacts from LinkedIn, you have a smorgasbord of personal relationships, business, peers, investors, asset managers. That’s a great list to market to once a week or once every two weeks and get the word out of what you’re doing. Sharing your note story, sharing the journey you’re on, that you’re buying or you’re moving out assets and things like that. An asset manager is going to search out who you are on LinkedIn if they’re on LinkedIn and check out your profile. That’s why it’s important to post your deals on LinkedIn, to post the deals that you’re working though, that you’ve closed so that you build not just a respect but a little bit of background history that the asset manager is going to see and say, “This is a serious person. He or she is an active investor. They are doing things. They can perform,” versus somebody who’s wet behind the ears and never closed on anything. That’s not saying if you’re brand new on this that you can’t close on deals. Use other people’s case studies. Use some sample deals to talk about what you’re doing. If you’re not sharing what you’re doing, you’re only hurting yourself and ultimately that in the long run is going to end up affecting you.

We’ve doubled our number in the last year. We have spent a big chunk of time focused on expanding our LinkedIn connections for a variety of reasons. The mass majority of our 5,000 new connections came from basically about four hours of work about six months ago. I was literally sitting at home on a Sunday night and Steph was like, “What the hell are you doing? You’re just clicking.” I had taken my laptop home, pulled it up, and I had done a search for a real estate investor or note investor in the job title search of LinkedIn for people’s job titles. I pulled up literally 10,000, 15,000 real estate investors. I was just going, “Connect, connect, connect,” because we had something in common. They’re a real estate investor, and I’m a real estate investor who’s trying to expand my network. For those who don’t have a big LinkedIn following, if you do that, it’s not going to let you connect with too many people before it shuts you down. If you have the paid version, they’ll let you do it, it’s fine. The free version, there are still limitations on how many people you can connect. There would be days that I would get 100 people that opt in. In other days, I get two or three. From those roughly four hours, two hours one night, two hours the second night, I just went through and connected. Sometimes I post a message. That has expanded our LinkedIn.

Note Investing Tactics: Your wealth is in your network

The reason to keep in mind is that everybody is looking for deals of some sort. A lot of people are excited about the note business. We use that for two things. One, there are people on our database that can eventually fund the deal, or worst case they’ll end up buying deals or maybe they have deals. Ultimately, we have our education side as well where they connect and they have been on a webinar. Maybe you can sign them up for class or something like that. Your wealth is in your network. The more expanded your network can be but if it’s all focused on one thing, the better it is. What a lot of people struggle with is when they still have a full-time job, “I don’t want to co-mingle my work people with my real estate people.” If you’re doing two or more things, that’s really confusing. If you’re a real estate investor and you’re trying to sell water filters and also soap on a rope or something else, you don’t know what you want to be when you grow up, and sure as hell your database isn’t going to know what the hell you are or what to call you. You have to be clearly focused and make things happen.

I get it if you have a job. Hopefully, your job allows you to do stuff on the side or your job isn’t looking too much on your LinkedIn profile. I had one lady who was all upset, “I can’t use LinkedIn.” I’m like, “Why not?” “My boss will fire me.” “Why?” “Because they don’t want me doing anything on the sideline.” “Are they offering you a 401(k) or these benefits? Is it a great job?” “No.” “Just tell them you’re a real estate investor because you’re trying to provide for your family. You’re trying to provide for retirement because they are not paying for it.” Sometimes it’s easier and better to ask for forgiveness instead of permission. Plenty of our students have used LinkedIn and very few have had their boss ever say something about it. In some of those rare cases, the boss is actually asking information because they want to invest with them.

The biggest thing that you want to do when you’re expanding connections is you want to connect with second-degree connections, not first-degree connections. That will filter that so that you’re not wasting time going just after everybody you can’t connect with. Second-degree connections are the easiest things to post with. It also helps if you have big connections on LinkedIn. When asset managers are looking at you they’ll see, “They’ve got a bigger database,” versus somebody who’s got 50 or 100 or 500 or less. Keep that in mind. It’s a great filtering thing when you’re talking to asset managers on things out there. If you can say, “I’ve got a big database. We’re looking to buy for our own portfolio. We buy in most major metroplexes,” those are some of the hot buttons that you want to use when you’re talking to asset managers. “We buy from most major markets excluding New York and New Jersey. We are looking to buy assets anywhere from $50,000 up to $500,000. We’re looking at commercial assets as well. I wouldn’t mind buying a one-off and looking into large tapes. We also can close pretty quickly. Pricing-wise, we will pay up to 65%, 70% of value depending on the foreclosure, the value and the location.” Those are just some of the easy things that you want to ask, “Ultimately, we are buying for our own portfolio. We are not a broker. We are not looking to flip these off. We are looking to buy for our own investment, our own portfolio so we can take it.” They have enough realtors, enough choker brokers trying new stuff. They want to deal with direct buyers and sellers.

Don’t tell them you’re flipping. Don’t tell them you’re brand new. Don’t tell them you’ve got $20 million and you’re the principal. Tell them that you’re a portfolio manager. I don’t segregate my LinkedIn connections. It would take forever to do. I just throw them all in as my LinkedIn connections. Eventually after the first email or two, they’re just part of my regular investor database. My connection usually is a data download with LinkedIn. I clean that spreadsheet up and upload it directly into Infusionsoft or MailChimp is where I used to do it and tag it LinkedIn connections. I send an email out to them, “Great connecting with you on LinkedIn. I just want to know what you’re up to. Here’s what we’re doing.” After the first or second email, they just go directly into my general real estate database. There are asset managers that didn’t get my emails for years. They’ll send me, “I haven’t had your email for six years. We’d love to talk to you about doing business.” The idea is it’s not instant gratification.

A lot of people don’t have the patience for calling banks because they don’t get the instant gratification, “You don’t have anything for me now? What’s wrong with you? I can’t do this. I’m not getting anything now.” It’s building the relationships for a long-term growth, long-term expansion. It’s planting the seeds with all these new asset managers so that they blossom in six months to twelve months because at some point, everybody’s going to have a non-performing note for sale. It’s just whether or not you want to build that relationship now for the long-term growth of your business and the long-term deal flow. A lot of people won’t. There’s probably less than 1% of true note investors who solicit to banks on a regular basis. It is what it is.

You’re going to get people on the phone. The biggest thing is don’t be afraid to mess up. You’re going to botch. You’re going to screw up. Just hang up and call the next one. There are so many banking relationships, bank connections out there, that the minute you goof up, just call them back in a couple of days. They’re not going to remember you for that. They don’t know you. They don’t care. You’re going to be a distant thought in about ten minutes from them. You can’t sit there and go, “I messed up. I’m scared to call the next one.” Just call the next one. Use the scripts. If you’ve been through the Virtual Workshop, you’ve seen scripts in our manual. If you haven’t been, you need to sign up for our that’s coming up in March 9th, 10th, and 11th.

Note Investing Tactics: Don’t be afraid to mess up.

What this Back to the Future episode is about is we have gone back to doing something that we did in the past so that we can boost our future. I may not be Marty McFly, I may not drive a Toyota 4Runner, I may not be Doc Brown, I might be a little crazy from time to time but my biggest goal is when I look at my business, where we’re at, where we’re going and where we’ve been, we can learn a lot from things that we did in the past or we may have done recently. My business was originally all 100% banks. It has evolved from 100% to 75% banks to 25% hedge funds. Then it was 50-50. Then it was 75-25. Then for a while it was 100% hedge funds just like many other people on 0% banks. I see where the market is, I see where it’s going, I see what’s happening and I want to go back to where we were in the past using that because that’s ultimately where all these deals come from. I’d rather go further upstream than dealing with the low-hanging fruit downstream. I don’t want to pay retail. I don’t want to fight with 100 other investors for the asset. I want to be one or two or three people or maybe the only person that sees the list from the banks and be able to control that, make a lot of money and making things happen.

2018 is going to be a spectacular year because we are investing in our self and our database. We are excited for the twenty people that are helping us out with this. We’ll provide some updates on how many banks, how many contacts, where we’re going, what we’re seeing on our Banking Blitzkrieg. Go out and have a great day. Go make something happen. Until we see you next time, we’ll see you all at the top.